- Fierce competition smashes profits
- Talk of ‘new strategy’ fails to convince investors
- Seeking long-term solution on capital structure and funding
First quarter sales and earnings slumped at Dignity (DTY) as the funeral services provider was hurt by a drop in the number of deaths as well as the need to combat increased competition through price cuts.
Shares in the Sutton Coldfield-headquartered company dropped 9% to a one-year low of 455p on news of the weak quarterly performance, though chief executive Gary Channon insisted his charge’s increased competitiveness is ‘showing up in across-the-board growth in market share’.
COVID BOOST FADES
Dignity, which believes it is the only UK ‘end-of-life provider’ that is ‘uniquely positioned to provide all the required elements of a funeral service’, reported a 67% slump in underlying operating profit to £9 million for the quarter ended 1 April.
Revenue fell 22% to £73.9 million as the number of deaths dropped by 19% to 166,000 versus the comparative quarter last year, when the death rate was elevated due to Covid-19.
As anticipated, Dignity’s move to cut prices in September 2021 to fend off cheaper competition resulted in lower average revenues per funeral.
However, Dignity stressed that ‘both funeral market share and crematoria market share grew strongly as the new strategy started to deliver the growth on which it depends’.
FCA REGULATION LOOMS
Elsewhere within the business, sales of pre-arranged funeral plans were low in the quarter following Dignity’s decision to end ties with third party telephony partners that had sold plans on its behalf, as the company readies itself for FCA regulation of the funeral plan market from 29 July 2022.
‘Whilst the impact of the pandemic has made year-on-year comparisons difficult, the early signs of our new strategy are coming through,’ said Channon.
‘Increased competitiveness is showing up in across-the-board growth in market share at the cost of average revenue per funeral. The combined effect of the drop in the death rate following the pandemic during a time of strategic change for the group is what we were protecting against when we sought and agreed the deal with our bondholders.
‘That gives us the ability to pursue the right long-term strategy whatever happens to the death rate this year. It also gives us the time to agree a more long-term solution for the capital structure which we are currently working on.’
Back in March, Dignity’s shares fell after the company warned its new strategy is ‘likely to lead to lower profits’ in the short term as the business sees a full year effect from reduced funeral prices under its new strategy.
Dignity also flagged the risk that the excess death rates seen over the past two years may start to normalise and warned that it will use more cash than it generates while it plays catch-up with investing in the business.
